Beauregard Textile Company
Beauregard Textile Company
Eugenio J. Miravete
Relevant Market Infomation
• Duopoly in the market of Triaxx-30:
– Beauregard Textile Company (BTC). – Calhoun & Pritchard Inc. (CPI).
• Pricing is final for each quarter (commitment) and normally BTC announce her price first. • BTC recently raised the price of T-30 from $3 to $4 to align this markup to other fabrics in her product line. • CPI held his price at $3. • CPI and BTC have similar costs. • CPI is in a tight financial situation. • Products are similar but not identical.
– BTC may have a location advantage.
MSB: Managerial Economics 2
Market Description
• •
Market remained quite stable around 225,000 yards. There is evidence that consumers switch suppliers to favor lower price.
MSB: Managerial Economics 3
Cost Analysis
•
What are the relevant cost items to consider in pricing T-30?
MSB: Managerial Economics 4
Cost Analysis
• Variable costs:
– – – – Direct Labor. Material. Material Spoilage. Direct Department Expense.
•
Exclude expenses not related to the scale of production of T-30, or that have been allocated following arbitrary accounting rules to cover costs that are common to the production of other items:
– General Overhead
• Plant accounting, insurance, security, plant manager’s salary.
– Selling and Administration.
• Finnacial accounting, personnel, officer’s compensation, as well as wages of sales people.
– Indirect Department Expense.
• Depreciation, supervision.
MSB: Managerial Economics
5
Demand Analysis
•
This is the present pricing arrangement where BTC charges $4.00 and CPI charges $3.00 per yard of T-30, respectively.
MSB: Managerial Economics
6
Demand Analysis
•
What would happen if BTC drops her price to $3.00 to match CPI?
– Is pricing at $3.00 sustainable in the long run when total cost per yard amount to $3.31?
MSB: Managerial Economics
7
Demand Analysis
•
Can BTC price at $4.00 to
Eugenio J. Miravete
Relevant Market Infomation
• Duopoly in the market of Triaxx-30:
– Beauregard Textile Company (BTC). – Calhoun & Pritchard Inc. (CPI).
• Pricing is final for each quarter (commitment) and normally BTC announce her price first. • BTC recently raised the price of T-30 from $3 to $4 to align this markup to other fabrics in her product line. • CPI held his price at $3. • CPI and BTC have similar costs. • CPI is in a tight financial situation. • Products are similar but not identical.
– BTC may have a location advantage.
MSB: Managerial Economics 2
Market Description
• •
Market remained quite stable around 225,000 yards. There is evidence that consumers switch suppliers to favor lower price.
MSB: Managerial Economics 3
Cost Analysis
•
What are the relevant cost items to consider in pricing T-30?
MSB: Managerial Economics 4
Cost Analysis
• Variable costs:
– – – – Direct Labor. Material. Material Spoilage. Direct Department Expense.
•
Exclude expenses not related to the scale of production of T-30, or that have been allocated following arbitrary accounting rules to cover costs that are common to the production of other items:
– General Overhead
• Plant accounting, insurance, security, plant manager’s salary.
– Selling and Administration.
• Finnacial accounting, personnel, officer’s compensation, as well as wages of sales people.
– Indirect Department Expense.
• Depreciation, supervision.
MSB: Managerial Economics
5
Demand Analysis
•
This is the present pricing arrangement where BTC charges $4.00 and CPI charges $3.00 per yard of T-30, respectively.
MSB: Managerial Economics
6
Demand Analysis
•
What would happen if BTC drops her price to $3.00 to match CPI?
– Is pricing at $3.00 sustainable in the long run when total cost per yard amount to $3.31?
MSB: Managerial Economics
7
Demand Analysis
•
Can BTC price at $4.00 to